Investment strategies for foundations and not-for-profits

Our team has decades of experience working with foundations and not-for-profits. Broadly, there are three types of foundations and not-for-profits, each with a different investment objective.

1) Operating institutions take in donations, grants and other funds and use the money to fund their current operations. Typically, they invest via low risk cash management strategies with some funds allocated to other investments in line with their expected expenditures.

2) Institutions that provide grants to other (operating) entities. These may distribute annually a specific percentage of asset values. For this type of foundation or not-for-profit, a targeted return approach may be most appropriate.

3) Funders with long term commitments, including capital project funders. These usually have predictable distribution requirements over time and therefore the assets can be managed against that schedule of liabilities.

Foundations, not-for-profits, and management of assets versus distributions

We help operating entities to manage their assets versus their expenditures to extract investment yields while retaining spending flexibility.

For the organizations that fund operating entities, we can help them develop an investment strategy that is responsive to their commitments and that helps them to support crucial budget items and/or capital improvements for their grantees.  As a team, we help grant providers help grant recipients.

Given the projected distributions, our team will develop an investment strategy that balances the rewards of longer-term investments with the needs for flexibility in case commitments change.  We use simulations to illustrate the impact that different asset allocations may have on the foundation’s or not-for-profit’s asset values after making cash flow distributions.

Private foundations not-for-profits and target return investment strategies 

Some foundations and not-for-profits calculate their distribution amounts as a percent of total assets. For example, in order to maintain their charitable tax status, private foundations are required to distribute 5% of their assets each year. If the foundation assets return less than the target return rate, then the asset principal may be needed to pay the required distribution. Target rate foundations and not-for-profits often have two competing goals:

  1. Preserve asset principal
  2. Maximize long term distributions

Our team will build an investment strategy that balances a possibly increased likelihood of achieving the asset target return rate against the chance of a larger potential asset loss. We use simulations to illustrate the impact that different asset allocations may have on the foundation’s asset value and cumulative cash flow distributions over time.

Contact us today to learn more. 

Let's start the conversation

If you want to discuss your portfolio or have financial questions, please fill out the below form.

To protect your privacy, we ask that you not send any confidential information, such as bank account numbers, credit card information or account details, through this contact us form.

*Required fields
Disclosures

Eric Stubbs, NMLS # 1555565, Enrique Jaen, NMLS # 1571254, and Madeleine Condron, NMLS # 2543940 through City National Bank, may receive compensation from RBC Wealth Management for referring customers to City National Bank. Banking products and services are offered or issued by City National Bank, an affiliate of RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC and are subject to City National Banks terms and conditions. Products and services offered through City National Bank are not insured by SIPC. City National Bank Member FDIC.

Investment products offered through RBC Wealth Management are not FDIC insured, are not guaranteed by City National Bank and may lose value.